The lag test in Guitar hero is pretty sophisticated. It consists of two steps:

1st) Audio lag calibration. Asks you to strum the guitar in synch with 8 to 10 klicks coming from the game.

2nd) Video lag calibration. Asks you do strum the guitar in synch with 8 to 10 notes passing through a circle (no sound).

It's very accurate in that I even tested out the different modes on my TV. With Game Mode enabled, I always got to 0ms - which got me suspicious of how accurate this actually is. So I disabled Game Mode and turned on Motionflow (Low), then tested 3 times. The Video lag was always 6ms (no audio lag, running directly to my 5.1 via optical). Then I tried Motionflow on medium, again 3 times, lag was always 8ms. Then Motionflow max, again 3 times -> lag always 8ms again. So I guess it's really very accurate.